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September 1, 2009

Conjecture

If anyone is angry about the super-late post tonight, you can blame my friend, Sam, for calling me at the last minute and luring me away with the promise of Brazilian barbecue. Yum! I'll provide his address upon request so you can kick his ass. Just don't touch the beer. Anyway, I can't say the markets did anything terribly exciting today. The S&P 500 was down, but I would hardly call the drop a breakout from the coil. The session low barely took out last Thursday's, and the bulls were strong enough to hold the morning low. I would certinaly not be taking the bait to get short at this juncture.

Another aspect of the market making me reticent to take the short side of equities is the fact that all the precious metals charts... especially palladium and silver... look ready to go vertical. I really doubt that the PMs can post a substantial advance without dragging stocks along for the ride... not at this juncture. We need some sort of event to force these asset classes in different directions. For the moment, I think have a stronger feel for precious metals than stocks, so I am going to assume that both will advance, probably spurred by a "surprise" drop in the dollar.

Now, keep in mind that a quick drop in the buck will likely constitute and ending move to the fifth wave of the decline since March. As such, any quick spike in precious metals could turn out to be a head fake. Likewise, a quick drop in the buck could spur the short squeeze in equities I hypothesized... also an ending move. Precious metals could then spend a couple more months shaking out weak hands before initiating a parabolic move as the next major bear wave in the buck unravels. On the other hand, PMs could advance along with the dollar if we saw renewed stress in the financial system due to the surge in ARM repricings on the horizon.

As you can see, we are at a point of conjecture. I suspect we the action will clarify over the next couple of weeks.

 

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